Purchasing a home is a huge milestone in one’s life, but it can also seem daunting. A home is probably the most expensive acquisition you’ll ever make, so you want to ensure your plans are responsible enough. If you are a bit apprehensive about saving up for a down-payment, here are a few ways to get started.
For one, you must get your mortgage calculations in order. Almost everybody knows this is where many people get it wrong. You will need to know the type of interest you want. Is it going to be fixed or variable? Many factors determine this, from market conditions to the reason for purchase and how long you intend to live in the property.
According to a national property survey few years ago, more than half of first-time buyers admitted they made a deposit of more than 10% when purchasing their first house, while the average first-time buyer deposited 17%.
How much can you afford?
Before picking any home, you should determine from your coffers how much you can afford and what you are looking for in a home, you can have a look at how much you might be able to borrow with a mortgage calculator. Outline basic necessities such as the location, size, proximity to work, children’s school, stores and so on.
When it comes to affordability, calculate how much you will pay every month in mortgage rates, including other expenses such as homeowners’ association (HOA) fees, taxes, insurance, utilities, upkeep and other costs. If you are a working couple, consider a property where you can pay for all expenses with one pay cheque.
Saving for a home deposit using “Help to Buy Isa”
Banks have some vehicles which are designed to help individuals save for their first home purchase. Help to Buy Isa is one of such financial vehicles. With a Help to Buy Isa, the government will give you a £50 bonus for every £200 you save into the account, to a maximum of £12,000. This means savers can get a maximum of £3000 bonus. This is applicable for properties costing up to £450,000 in London. It is payable upon your first purchase.
One major advantage of Help to Buy Isa is, like other Isas, any interest earned in the account will be tax-free.
Save for your mortgage deposit with a savings account
Your typical savings account often pays attractive interest rates and can be an effective way to ensure you are putting money aside monthly. However, these accounts usually come with restrictions which you should be aware of. For instance, there may be restrictions on how many times you can withdraw annually to benefit from the interest.
Remember to put in money every month because you may be given less interest if you miss out on a month of savings.
The savings earned in these accounts are usually non-tax deductible as long as you abide by the terms. Over time, you will discover you have something substantial to help make a down-payment on your property.